Closing a project's financing is always a challenge; doing it when money is expensive is an art. With the Banco de la República's policy rate at 11.25% in 2026 and a high cost of capital worldwide, many good projects are being shelved. They do not have to be: with the right structure, a solid project can be financed even in a high-rate environment. Here we explain how.

The new cost of money

Context matters. During 2026, under pressure from accelerating inflation —around 5.6% in March, with expectations deteriorating towards 6.4% for the year-end— the Banco de la República raised its policy rate to 11.25% and held it there, reiterating its commitment to the 3% target. Globally, energy shocks and inflation kept financing costs at high levels. The result: debt, which is the fuel of project finance, became more expensive and more demanding.

Why high rates penalise project finance

Project finance rests on debt repaid from the project's cash flows. When the cost of that debt rises, three things happen at once:

• Debt service increases: more interest means less headroom to cover payments, which squeezes the coverage ratio (DSCR).
• Achievable leverage falls: if every peso of debt costs more, the project supports less debt for the same cash flow, and requires more equity.
• Valuations fall: a higher discount rate reduces the present value of future cash flows.

The good news is that each of these effects can be managed through structure. Let us look at how.

First commandment: long-term contracted revenue

In a high-rate environment, revenue predictability is worth its weight in gold. A project with long-term contracted revenue —a power purchase agreement (PPA) or a contract won in a long-term auction— conveys to lenders a security that translates into better terms: longer tenors, better rates, greater appetite. The more predictable the cash flow, the better the project withstands the weight of a high cost of debt.

At high rates, a long-term contract is not a luxury: it is the difference between a financeable project and one left waiting.

Capital structure: more equity, intelligent layers

When debt is expensive, the capital structure must be recalibrated. This usually means a larger equity contribution to bring leverage down to levels the project can sustain, and sometimes adding intermediate layers —mezzanine debt— that complement senior debt without overloading it. The aim is to find the combination that keeps the project viable without destroying the sponsor's return.

Managing interest rate risk

One of the big questions in this environment is: fixed or floating rate? Leaving all the debt at a floating rate exposes the project to rising payments if rates stay high. That is why a central part of structuring is hedging that risk:

• Interest rate swaps to fix the cost of debt.
• Caps that place a ceiling on the rate, protecting against further increases.
• Collars that bracket the rate within a range.

Hedging has a cost, but it buys something valuable: predictability. And predictability is precisely what a lender rewards.

Modelling sensitivity and stressing the project

No serious close happens without a financial model that answers honestly what happens if rates rise another point, if inflation persists or if revenue falls. Stressing the project against adverse scenarios is not pessimism: it is what a credit committee demands and what allows structuring with a margin of safety. A project that shows it can withstand the worst reasonable case obtains financing even when money is expensive.

Matching tenors and building buffers

Two additional disciplines make the difference. First, matching the tenor of the debt with the life and cash flows of the project: financing a long-term investment with short-term debt is a recipe for cash stress. Second, building reserve accounts —for debt service and maintenance— that give the lender comfort and the project resilience against the unexpected.

Negotiating with the right lenders

In high-rate environments, not all financiers react the same way. Multilateral development banks —such as IDB Invest or the World Bank's IFC— usually bring longer tenors and an appetite for energy and infrastructure projects that commercial banks may lack in times of stress. Identifying the right counterpart for each project, and arriving with the documentation ready, speeds up the close and improves terms.

Timing: moving forward with a cool head

Is it worth waiting for rates to fall? Sometimes yes, sometimes no. Waiting has a cost: the project ages, permits expire, the market opportunity passes. The right decision depends on the project, its urgency and the structure available. What is never advisable is paralysis: even at high rates, a well-structured project with contracted revenue is financeable today.

How Selva helps

At Selva Investment Banking we structure and close project financing also —and above all— when the environment is difficult. We model the project with realistic rate scenarios, design the capital structure and the appropriate hedges, secure the contracted revenue that makes it bankable and take it to the right financier. High rates are a filter: they separate well-structured projects from the rest. Our job is to make sure yours ends up on the right side.

The impact sector by sector

High rates do not hit all projects equally. In energy, projects with long-term contracts or auction awards hold up better, because their contracted revenue offsets the higher cost of debt. In agribusiness, where seasonality already strains cash flow, more expensive working capital demands especially careful financing structures and, where possible, hedges. In real estate, the effect is twofold: it raises the cost of construction credit and, at the same time, can cool demand from end buyers who depend on mortgages. Understanding how the cost of money affects each sector is the first step to structuring a transaction that withstands the environment.

Refinancing: when and how

At high rates, refinancing ceases to be a formality and becomes a strategic decision. For a project with debt approaching maturity, refinancing in this environment can mean less favourable terms, and that refinancing risk must be anticipated in the original structure. Some transactions opt for longer tenors from the outset so as not to be exposed to refinancing at the worst moment; others include prepayment options so they can restructure if rates fall later. The key is not to design the debt assuming that today's conditions will be tomorrow's, in either direction.

What a credit committee watches at high rates

When money is expensive, financiers become more demanding, and it pays to know what they look at. They require more comfortable debt service coverage ratios (DSCR), because they want a greater margin of safety. They scrutinise the model's assumptions and reward conservative ones. They assess the share of contracted revenue versus revenue exposed to the market. They expect robust reserve accounts and a real capital commitment from the sponsor. Arriving at the table understanding these criteria —and having built them into the project— speeds up the close and improves the terms.

Mistakes that cost dearly

There are missteps that are forgiven in a low-rate environment and paid for dearly in a high-rate one: leveraging the project beyond what its cash flows can sustain; leaving all the debt at a floating rate without a hedge; financing a long-term asset with short-term debt; building an optimistic model that cannot withstand an adverse scenario; or ignoring the risk of having to refinance at a bad moment. Every one of these mistakes is avoidable with structure and discipline.

The upside of high rates

Counter-intuitive as it may sound, a high-rate environment also has its upside, above all for those with capital and judgment. High rates discipline the market: they filter out badly structured projects, curb euphoria and leave standing only those that genuinely hold up. For a patient buyer or investor, that means less competition for good assets and better entry valuations, because sellers adjust expectations and projects trade at more reasonable multiples. History shows that many of the best investments originate precisely in difficult environments, when capital is scarce and discipline rewards those who know how to structure. The key is not to confuse a demanding environment with a closed one: for the well prepared, high rates are as much a filter as an opportunity.

A note on the cost of not acting

It is worth closing with a caution: in finance, waiting is also a decision, and it has a cost. While a project is postponed in the hope of a friendlier rate environment, permits expire, equipment prices change, competitors advance and market opportunities close. That opportunity cost rarely appears in the financial model, but it is real. That is why the right question is not only what it costs to finance today, but what it costs not to. For a well-structured project with contracted revenue, the answer usually leans towards moving forward, with the right structure, rather than waiting for a perfect moment that may never come.

In summary

Closing a project finance deal at high rates is demanding, but far from impossible. The difference between a project that gets financed and one left waiting is not the rates, but the structure: long-term contracted revenue, a well-calibrated mix of equity and debt, hedges that provide predictability, tenors matched to the life of the project, reserve accounts and the right financiers. High rates act as a filter separating solid projects from fragile ones; with the right structure, a good project ends up on the right side of that filter. And, as in every difficult phase of the cycle, those who know how to structure do not merely survive: they find the best opportunities.

Frequently asked questions

Sources and references

• Banco de la República — Policy rate and inflation 2026
• IFC (World Bank) — Project and infrastructure finance
• IDB Invest — Energy and infrastructure financing in Latin America
• World Bank — Commodity Markets / impact of energy shocks

This content is informative and general in nature; it does not constitute financial or investment advice. The rate and inflation figures come from public sources as at the date of publication and may vary.

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